Question 1

An increase in the budget surplus is associated with which type of policy?

a. Expansive fiscal policy

b. Redistribution of wealth in the economy

c. Contractionary fiscal policy

Question 2

Easy fiscal policy combined with easy monetary policy is most effective for:

a. Encouraging business investment at the expense of consumer spending

b. Promoting growth in both the public and private sectors

c. Restraining inflation and promoting growth

Question 3

Central banks' targets usually include which of the following:

a. Stable prices and high levels of employment

b. A strong exchange rate and high interest rates

c.A high level of demand for money and strong economic growth

Question 4

When considering a country's debt level it is most appropriate to:

a. Analyze it relative to the size of the country's economy as measured by GDP.

b. Be wary of any country with debt because debt is always bad.

c. Analyze it at the peak of an economic cycle.

Question 5

Which of the following is the most likely example of a restrictive fiscal policy?

a. An increase in the central bank's official policy rate.

b. A reduction in government spending on infrastructure such as roads or utilities.

c. A reduction in corporate taxes.

Question 6

Which of the following is the most likely example of expansionary monetary policy?

a, An increase in taxes and a reduction in government spending.

b. A decrease in taxes and an increase in interbank interest rates.

c. Quantitative easing--the purchase of government bonds by the central bank.

Question 7

For a given country, the impact of expansionary monetary policy is:

a. Diminished if banks are not willing to extend loans to individuals and businesses.

b. Generally the same regardless of banks' lending policies.

c. Enhanced if it leads to significant levels of inflation.

Question 8

Which type of inflation is most likely to have a negative impact on the economy?

a. Expected inflation.

b. Unexpected inflation.

c. Any type of inflation.